One Big Risk for Cuba-U.S. Relations: Moving Too Fast

A normal economic relationship between the United States and Cuba has
been a long time coming; the strict trade embargo with the island nation
has been in place longer than the current president of the United States
has been alive.

But if Cuba and the United States are one day to become allies with the
deep economic interconnections you might expect of two countries
separated by only 90 miles of sea, one of the biggest risks might be
moving too fast.

That is a conclusion of some scholars who very much favor economic
liberalization of Cuba — but want it done right. Gary Clyde Hufbauer and
Barbara Kotschwar, scholars at the Peterson Institute for International
Economics, published a book this spring looking at the hard task of
reintegrating the two economies as Fidel and Raúl Castro fade from the
political scene. Their conclusions suggest it would be foolhardy to
imagine a rapid return to the days when American tourists frequented the
Tropicana, and the Federal Reserve Bank of Atlanta had an office in Havana.

There is, they argue, a model for how not to make the transition, a
prime example being Russia’s “shock therapy” approach to privatizing
industries and introducing democratic government after the demise of the
Soviet Union.

“The world has already witnessed Russia’s headlong rush into capitalism,
and the terrible consequences when an economy is captured by oligarchs
and overrun by corruption, with only a veneer of democratic
institutions,” write Mr. Hufbauer and Ms. Kotschwar in their new book,
“Economic Normalization With Cuba.”

“For many Russians, the transition from Communism to capitalism was a
disaster,” they wrote. “Without a proper institutional framework, much
the same could happen in Cuba, given its huge portfolio of state-run
companies closely tied to the military and its entrenched bureaucracy.”

Cubans — and Americans wanting to do business there — will be better off
if they instead emulate Vietnam and China, two countries that have
migrated from Communism to a hybrid system that is nominally Communist
but practices free-market capitalism to a large degree. That has allowed
them to become more fully integrated into the global economy and helped
millions of their citizens escape poverty over the last generation
without bloodshed or revolution.

How might that strategy of gradualism play out in Cuba?

Mr. Hufbauer and Ms. Kotschwar envision liberalization proceeding step
by step, with each step matched by greater integration in the
American-led economic and political system.

“if the United States allows Americans to freely travel to Cuba for
tourism, Cuba should commit to allowing American hotel chains to operate…

For example, they write, if the United States allows Americans to freely
travel to Cuba for tourism (a step that the Obama administration stopped
short of in the series of steps toward liberalization announced
Wednesday), Cuba should commit to allowing American hotel chains to
operate on equal footing with Cuban and European-owned resorts.

Or if the United States allows Cuba to join the International Monetary
Fund, Cuba should commit to complying over time with the trade
liberalization rules of the World Trade Organization.

And to the degree Cuban firms are allowed to export cigars and other
goods to the United States, American firms should be granted freedom to
invest in Cuba on terms comparable to that of other international ventures.

For two countries that have barely talked to each other for nearly three
generations, there is a long way to go to build the kind of trust that
the United States enjoys with most of its neighbors. The approach that
Mr. Hufbauer and Ms. Kotschwar (who were both traveling Wednesday and
thus unavailable to be interviewed) outline a way to build that trust
step by step. One imagines the negotiations that led to the new thaw,
which reportedly took place in Canada and at the Vatican, being first
steps toward that kind of mutual back-and-forth you see in normal
diplomatic and trade relationships.

One thing is for sure, though. Given how hostile United States relations
with Russia are more than two decades after the fall of the Soviet
Union, Americans have a strong rooting interest in avoiding a Putin-like
leader of Cuba 90 miles from its shores.